Bucktown site loses another buyer

(Crain's) -- Plans for a retail development at the Hayes Mechanical site near Bucktown have hit another hurdle, as a third would-be buyer of the property has fallen out of contract.

The owner of the land, Helco Corp., last month sued a venture led by Chicago developer Smithfield Properties LLC, alleging that Smithfield backed out of a deal to buy the roughly five-acre triangular parcel bounded by Elston, Ashland and Webster avenues.

Helco, which is also the majority owner of Hayes Mechanical Inc., is suing to collect the remaining $550,000 in earnest money that Smithfield put up, according to the breach-of-contract lawsuit filed Jan. 4 in Cook County Circuit Court.

The lawsuit alleges that Smithfield asked for a price reduction in December, seeking to pay $12.5 million rather than $16 million as first agreed almost a year earlier. Also in December, the lawsuit alleges, Smithfield thwarted the deal by withdrawing a planned development proposal just before the City Council was to approve it.

"Smithfield determined that the economics of its development of the subject property were no longer desirable," the lawsuit says.

Smithfield, whose principals include Bill Smith, had been in talks with Milwaukee-based grocery chain Roundy's Supermarkets Inc. about anchoring a 100,000-square-foot retail project at the property. Roundy's CEO Robert Mariano told Crain's in October that he was in advanced talks with Smithfield for the site.

In a Dec. 7 letter to Ms. Mooney that was included with the lawsuit, Smithfield's Mr. Smith said the turmoil in the financial markets that has lenders requiring more equity in real estate deals made the Hayes Mechanical purchase unworkable at $16 million.

"The world of finance and real estate is going through an unprecedented period of turmoil," Mr. Smith wrote. "Because of the events that no one could have contemplated, the only way the transaction works, at least as contemplated, is for the seller to reduce the price of the land."

Mr. Smith also said in the letter that his firm wouldn't consider a deal with an initial yield below 10% "cash-on-cash return on equity," and that even at the $12.5-million price, Smithfield's return on investment would be about 8%.

Smithfield is the third would-be retail developer that has had the site under contract in recent years.

Bond Cos. had the site under contract in 2006, seeking to do a mixed-use retail and residential development. That deal was assumed by a joint venture of retail broker David Stone of Stone Real Estate Corp. and Leigh Rabman, president of RN Realty LLC. Messrs. Stone and Rabman proposed a 130,000-square-foot retail complex, but the two ultimately weren't able to close.

Smithfield put the property under contract on Jan. 22, 2007, according to Helco's lawsuit, putting down earnest money of $800,000. In September last year, $250,000 of that money was released from escrow and paid to Helco as part of a deal that extended the zoning contingency into December.

Both Helco and Smithfield have sent letters to the title company holding the remaining earnest money asking that the money not be paid to the other, according to the lawsuit. In a Dec. 20 letter, the suit says, Smithfield disputed that it breached the purchase agreement and said Helco does not have a right to the remaining earnest money.

Helco alleges that it suffered damages because Hayes Mechanical spent time and money looking for a new location, and will move in the next few months. Also, Helco says it lost income by not seeking a tenant for one of the buildings on the property that was unoccupied.